California Firms Get Much More Venture Capital : Investing: Money invested nearly triples over previous quarter, survey finds. Silicon Valley companies benefit most.
Money invested in young California companies nearly tripled during the second quarter as venture capitalists loaded with cash have become increasingly bullish on high-tech companies, according to a survey.
Although most of the $768 million invested in California--up from $272 million in the first quarter--went to Silicon Valley companies, Southland firms received $203.6 million in venture capital, more than twice the previous quarter.
Nationally, venture investments increased 42% from the first quarter, mainly to high-technology companies developing new software, according to a recent survey by Big Six accounting firm Price Waterhouse.
The big jump in fundings is part of a yearlong trend showing venture capitalists more willing to take a chance on young companies than they have been in a long time.
And entrepreneurs are glad the spigot is opening wider.
“We need more of it,” said Dennis Galloway, president of Dial One Inc. in Orange. The company received more than $2 million to help it get back on its feet as a franchiser of building contractors. “There are some grand ideas and opportunities out there, and not enough of them are getting funded.”
Nationwide, the survey found that $2.13 billion was invested in 440 companies, contrasted with $1.5 billion invested in 316 companies during the first quarter.
Industry leaders say various factors have contributed to the rising number of investments and the higher amount being invested.
“This much investment shows clearly that there’s some strong faith in the future of the economy,” said L. Michael Larrenaga, managing partner of Price Waterhouse’s Southern California high-technology group.
Larrenaga was enthusiastic about both the number of deals and the amount of money poured into companies based in Southern California, where the economy has struggled to get free from the long recession of the early 1990s.
“The total number shows an increasing activity and a stronger trend,” he said. The number of Southern California companies receiving venture funds rose from 23 in last year’s fourth quarter to 25 in the first quarter, then jumped to 38 investments in the second quarter, according to the survey.
Industry experts point to other compelling factors to explain the rise.
Most of the money being invested is going not to the traditional start-up company but to the somewhat older company where the risk of failure is less and the gains on the sale of stock or the company come quicker, said Jesse Reyes, director of Venture Economics Information Services, an industry services firm in Wellesley, Mass.
“Venture capital companies have raised a lot of money over last three or four years--several billion dollars--and their investors expect that money to go to work for them,” Reyes said. Venture capitalists see Wall Street snatching up the stock of small companies--especially high-tech ones--as they go public, he said, and they “are trying quickly to ride that wave.”
The Price Waterhouse survey showed that only 4.7% of the money invested during the second quarter went to new companies and that only 18.6% went to companies in the early stages. Most of the rest went to companies expanding or getting ready to go public.
Jean Deleage, a partner in venture capital firm of Burr Eagan Deleage & Co. in San Francisco, said that pension funds especially have been boosting venture funds in the last six to eight months.
“We have more money, and so we have a tendency to be more aggressive,” Deleage said. “We have a lot of opportunities to do a lot of good deals. The major difference between venture capital today and 10 to 15 years ago is that now we are backing more ambitious projects. We’re investing in small companies that are going after the Microsofts in their industries.”
In addition, he said, venture capitalists are often investing $5 million to $10 million in good projects. “Not long ago, $2 million was a big investment.”
